SEARCH
Fraud in the Church – What the Survey Tells Us
Posted in: Asset Misappropriations, Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention by psk on April 26, 2012 | No Comments
Our church has established an “approved vendor list”. All payments for goods or services are made only to vendors on the list.
A surprisingly high percentage (82%) of our respondents has not established an “approved vendor list”. A common misconception in the church environment is that “If we are going to be hit, it will be directed towards our tithes and offerings.” While this does happen frequently, some of the largest dollar losses occur in the disbursement processes, not the receipts. Also, these types of frauds, because of their difficulty of detection, seem to go on for longer periods of time than thefts of cash receipts. From my observations, it seems that many more churches are hit after their revenues are safely in the church’s bank accounts, not on their way in.
The first line of defense against disbursement fraud is the development of well-defined AND written bill approval and payment policies and processes. In addition to purchase orders and check requests, such a system should include a formal vendor selection and retention process. After successfully screening potential donors, the church should develop a preferred vendor list. As part of the check signing process, payees should be compared to the approved vendor list.
Fraud in the Church – What the Survey Tells Us
Posted in: Asset Misappropriations, Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on April 19, 2012 | No Comments
Our church reconciles payroll quarterly reports with the payroll journals and general ledger.
Almost 25% of our respondents do not perform this relatively simple task. I can show you plenty of news reports of churches who wish they had! Occasionally, I need to point out the obvious; thieves do not like to get caught! To remain successful at this, they have to hide in the tall weeds. This means they are going to target the big numbers in a church’s financial statements. And the biggest of the big numbers is payroll cost.
Typically, payroll makes up 50% of a church’s operating budget. For example, if a church has a one million dollar budget, a thief can easily find cover among $500K of tall weeds!
To avoid being the victim, churches should take care to:
- Know who their employees are
- Know how much their employees are paid
- Periodically review activity in the payroll general ledger accounts
- Compare payroll reports with budget totals
Fraud in the Church – What the Survey Tells Us
Posted in: Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on March 8, 2012 | No Comments
Our church has established a formal program for managing fraud risk.
Almost 63% of our respondents reported that they have not conducted a fraud risk assessment or implemented an ongoing fraud prevention program. Unfortunately, my guess is that the national average is much higher. It is hard to pinpoint what might be the cause of this rather high percentage but two reasons are prominent:
- The work load of most church business administrators has them stretched to the limit. There is barely time to get all of the routine tasks completed on a timely basis much less take on additional projects.
- When they do try to implement a program, many CBAs end up as the Lone Ranger. In many, if not most churches, fraud prevention is a very difficult proposition to sell. The biggest hurdle? The mistaken belief that “it can never happen here.”
It is not enough to simply be aware of the threat of fraud or go through the motions of fraud prevention. Ministries that don’t commit themselves to a strong fraud prevention and detection program will likely end up as victims.
A few key ingredients of a formal fraud risk program include:
- Education of church employees, volunteers and members of the risks of fraud.
- Conducting an initial “brain storming” session whose purpose is to identify potential fraud portals.
- Assigning ownership of fraud prevention processes to key church leaders and employees.
- Implementing a periodic review of transactions.
- Periodic review and assessment of the church’s systems.
- Implementation of an anonymous whistleblower hotline. (More about this in a subsequent post)
Fraud in the Church – What the Survey Tells Us
Posted in: Blog, Effects of Church Fraud, Fraud Prevention, Uncategorized by psk on February 29, 2012 | No Comments
The occurrence of occupational fraud within the church community continues to rise at epidemic proportions. Evidence of this is found in the steady flow of news accounts reporting churches hit with fraud:
- The Archdiocese of New York was bilked to the tune of $1M.
- Incredibly, so was the Archdiocese of Philly.
- A pastor in Grand Rapids Michigan is on the hot seat for stealing between 50K and 100K by using church bank accounts and credit cards.
- A woman in Ohio is accused of stealing $143K from the church where she was employed. (Unbelievably in an attempt to cover up her deeds, she sent an appeal letter asking each member to send $200 to the church to cover a church debt!)
Just in the past year we have been called in to help clients deal with:
- A church employee who refused to be accountable for credit card usage.
- A treasurer who used his position to steal from the church.
- A day care director who skimmed from the tuition receipts.
- A church hit by vendor fraud.
- A church bookkeeper who paid personal expenses with church funds.
In an effort to find out what is going on, PSK in cooperation with the NACBA is in the process of conducting a survey to determine the extent to which churches are attempting to address this problem. In the following weeks we will be posting some of our preliminary findings.
Speaking Engagement: The Effects of Church Fraud
Posted in: Effects of Church Fraud by on April 25, 2011 | No Comments
Weeds in the Garden’s Verne Hargreave spoke on Church Fraud Deterrence at RockPoint Church in Flower Mound Texas.
All It Takes is One Person
Posted in: Blog, Effects of Church Fraud, Fraud Prevention by psk on April 1, 2011 | No Comments
As I was doing my routine search for fraud related news this morning, I stumbled upon this story:
In my search for fraud related news articles I have come across a wide range of scenarios, but majority had a common denominator; the church impacted by fraud either dissolved or struggled for survival in the aftermath.
Tithes, offerings and contributions are the bloodline of every church. The need to uphold the confidence amongst its members and general public is extremely important, not just because it is important for the continued existence of the ministry but also because it is our duty to be good stewards.
Most members and donors would curtail or completely disassociate themselves with a church if they have any reservations about the financial activities of that church. So performing annual fraud risk assessments at your church is not only vital for members’ confidence but also can be extremely effective in drawing additional members and contributions.
Remember, all it takes is one person with the motivation and opportunity to bring down your church.
Are you willing to take that risk?
To help you be proactive in protecting your church we have created FACT, which will identify any cracks in your system and help you prevent fraud.
Learn more at: http://pop.pskcpa.com/fact/ or give us a call at (817) 664-3000.
A Commitment to the Future
Posted in: Blog, Effects of Church Fraud, Fraud Prevention by psk on January 31, 2011 | No Comments
To successfully prevent becoming the victim of fraud, a church must assess its current condition, develop a fraud protection plan and implement the plan. But, it can’t stop there. Key: The church must live by the plan from that point forward. It must make a commitment to the future. The plan must be on-going. A few key elements in an on-going fraud prevention program:
- Establishment of a formal, written program for managing fraud risk.
- Assigning ownership of the task to an anti-fraud taskforce made up of key employees and officers.
- Educating staff and members of the risks of fraud.
- Periodically (annually is preferred) assessing the church’s systems in regard to fraud susceptibility.
- Implementing a periodic review of transactions (often referred to as internal audit).
Posting a Guard over Fixed Assets
Posted in: Asset Misappropriations, Blog, Effects of Church Fraud by psk on January 24, 2011 | No Comments
I don’t mean this literally of course. Few churches have the resources to have full time security guards. But, churches need to do more than they currently do. Because churches “obsess” over watching over their bank accounts, they have very little time left to watch over their “stuff”. That’s why I can safely say that every church with non-cash assets will testify that if you don’t watch your fixed assets, they may just “walk off”.
I am also fairly certain that this inattention is very costly. Most churches would be shocked if they totaled up their annual replacement costs for computers, televisions, recorders and sound equipment. It would also be interesting to know how much of the purchases were to replace items stolen or “misplaced”. Churches would save money in the long-run if they practiced as much stewardship over “stuff” as they do over cash.
The starting point in gaining control over fixed assets is to maintain better records of fixed assets; what is owned, when it was purchased, how much it cost, and where it is supposed to be located. The list should be referred to often, re-evaluated each year and adjusted for disposals and additions.
Periodically a physical inventory should be taken, if for no other reason, to establish insurance values in the case of fire or natural disaster. This does not have to be a complex process and simpler really is better. A video inventory would be more than sufficient.
Finally, some assets need special consideration. These are assets that the IRS is most concerned with and are also most appealing to thieves; assets that can easily be used for personal purposes. Cars, trucks, computers, and video and recording equipment are the most popular types. Churches would be wise to establish a few policies to monitor the use of these assets.
Comprehensive Human Resources Planning
Posted in: Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Payroll Fraud, Phantom Employees by psk on January 17, 2011 | No Comments
Except in the rarest of cases, personnel costs are the single largest expenditure of a church. Because churches are in the “service industry”, it should come as no surprise that forty-five to fifty percent of the typical church budget will be dedicated to employee related costs.
This highlights a basic principle in the behavior of an embezzler. For obvious reasons, people committing fraud prefer to remain anonymous. In order to enjoy the fruits of their labor they must remain hidden. It is much easier to hide fraud among the bigger numbers – like payroll.
Key: As a result, personnel costs are a favorite target of fraudsters. Usually, fraud in this area is small-time with one employee falsifying their own time card or submitting phony expense reports. However, some payroll frauds can be quite extensive and creative. The more spectacular (and costly) may involve:
- “Phantom” employees
- Fraudulent insurance claims
- Bogus tax refunds.
These scams can easily run into the tens of thousands of dollars.
Churches should not be naïve about payroll fraud. Because churches are as vulnerable to personnel fraud as businesses, they should do two things.
- First, repeating the theme of a previous section, churches must follow the IRS compliance guidelines. This means designating an independent compensation committee to set compensation amounts, based on market comparison information, and documenting all decisions made. At a minimum, this process should be followed for executive level staff but is also a good practice to follow for the entire church staff.
- Second, churches should also follow a “best practices” approach in human resources administration. In addition to contributing to a healthy workforce these best practices also contribute to eliminating the possibility of fraud. A few of these practices are:
- Establishment of formal job descriptions
- Performing background checks
- Performing regular performance evaluations and obtaining written termination letters from departing employees.
Awareness of ALL Sources of Revenue
Posted in: Asset Misappropriations, Blog, Contributions and Offerings Fraud, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on January 3, 2011 | No Comments
Any discussion of church tithes and offerings practices usually includes both a pat on the back and a criticism. First, in regard to the normal Sunday offerings I can say to most churches, “Way to go!” In fact, when I ask a client if they have taken any fraud prevention steps, the first thing usually mentioned is how much the church has done to protect the offering plate. Seldom do I encounter a church that does not have multi-member count teams, rotating terms of service, locking bank bags, dual-access safes and in an increasing number, the use of an armored car service. I would venture an educated guess that the majority of churches have more than adequate controls over Sunday receipts. For some, Fort Knox would be an easier target.
But in regard to the rest of the money, the funds that come in during the rest of the week, I often have to say, “What were you thinking?” While being diligent to a fault on Sunday morning, almost anything and everything goes the rest of the week. Here are two in my hall of fame:
- Offerings, fees and other receipts arriving in the mail or dropped off by members are simply dumped on the financial secretary’s desk. I have entered offices with large piles of unguarded cash on the accountant’s desk more times than I can remember.
- Special events funds sometimes are “managed” by a volunteer. The funds are kept off campus and are not turned over to the business office until the event is over. No accounting or reconciliation of goods sold is required.
Needless to say, some of our more interesting and sometimes humorous fraud stories occur in these two areas.
However, this is no laughing matter, because a significant “event” could cause irreparable damage. That being the case, definite steps should be taken.
- First, a brainstorming session could be held, the purpose of which is to determine all sources of income.
- Once identified, all sources should be included in the church’s normal collection policies and procedures. For example,
- For weekday drop-offs and mail-ins, a lock box could be kept in the church’s safe in which all of these receipts would be placed unopened.
- A separate log or register should be maintained to keep a record that the amounts were received.
- On Sunday, the box could then be opened and counted by the teller team on duty.